Comstock Sold To Jupitermedia

Jupitermedia Corporation (Nasdaq: JUPM - News) has acquired all the assets of Comstock Images (www.comstock.com) for $20.85 million in cash. Comstock Images which has been in business since 1976 is based in Mountainside, NJ and has operations in Toronto, Canada and Steinsel, Luxembourg.

"Comstock Images is one of the great names in the stock photography business in the world today and its addition to our JupiterImages division (which includes photos.com) immediately makes Jupitermedia one of the largest organizations worldwide in the business of selling stock images by single download or online subscription," stated Alan M. Meckler, Chairman and CEO of Jupitermedia Corporation. "The acquisition adds over 500,000 wholly owned stock images to our image library. We anticipate significant marketing and business synergies between Comstock Images and our JupiterImages division as well as our other Jupitermedia properties. We expect that this acquisition will immediately be accretive to our earnings and cash flows," added Meckler.

Jupitermedia had gross revenues in 2003 of $46,991,000, but most of that came from lines of business other than stock photography. The company's major businesses are in providing advertisers and vendors with a means to reach a large community of Internet and Internet technology professionals, and in providing research services and organizing events such as trade show. Their properties include more than 150 web sites that have 20 million users. In 2003 a little over $4 million in revenue came from licensing rights to images and while a significant portion of that was for illustrations, the still photo part of this revenue is growing rapidly and is well over 50%.

In the summer of 2003 Jupiter acquired ArtToday.com (See Story 573 ) from International Microcomputer Software, Inc. (ISMI) for $13 million in cash and an earn out that could result in an additional $4 million in cash considerations over the next two years. The $4 million of 2003 revenues represent the revenues of ArtToday from July 1 through December 31, 2003. Revenues increased from $1.8 million in the 3rd quarter to $2.2 million in the 4th quarter and virtually all of this results from people buying subscription rather than single images. (ArtToday met the earnings goal for the last half of 2003 and IMSI was paid an additional $1 million in February 2004.)

It is believed that Comstock was paid about two times annual earnings making their estimated gross revenue for 2003 about $10 million. (It is believed that Comstock's earnings in their best years was about $16 million, but the $10 million is up from what it was two years ago.) Their current worldwide staff is approximately 48 people. Sources indicate that Comstock's Canadian and Luxembourg offices may represent about $2 million of the revenue figure with the other $8 million in sales in the U.S. Most of this revenue comes from RF licensing and observers believe that the revenue from RM sales was a very insignificant portion of total revenue in 2003.

One of the big advantages for Jupitermedia in this acquisition is that virtually all of the imagery is wholly owned. However, approximately three years ago Comstock stopped producing Rights Managed images and began to focus exclusively on producing RF. All the RF imagery has been produced on a buyout basis. In addition, much of the best Rights Managed imagery from the earlier years has already been made a part of the RF collection.

While Meckler says that the agency has 500,000 images, the vast majority of these are older RM images, and include a lot of duplicates. If you search the Comstock RF site for horizontal, vertical, square and panoramic you find that there are only about 19,000 images available. The $10 million in earning from 19,000 images (an average of $526 per-image, per-year) is impressive, but it is a far cry from having 500,000 saleable images in the collection.

It is also noteworthy that the average return per-image of Photos.com (the ArtToday still photo division) is somewhere in the range of $25 to $50 per-image. Meckler points out that this difference is because the Photos.com images are licensed by subscription while the Comstock images are priced, for the most part, on a single use basis.

Comstock's strategy for production, marketing and customer service has been quite different from Jupitermedia's. This seems to produce a much higher return per-image, but to maintain this on a continuing basis may require much higher operating overhead. As Jupitermedia moves ahead it will be interesting to see if they expand more along the Comstock lines of operation--and possibly acquire more similar companies--or if they stay more focused on the Photos.com subscription model that may produce lower revenue, but may have significantly lower costs. In any event, with this acquisition Jupitermedia has the ability to make solid comparisons of the two models.

It is interesting that the stock market is currently valuing Jupitermedia at $321 million, or about 7 times trailing twelve month revenue, which is slightly higher than the 6 times trailing twelve month revenue valuation of Getty Images at $3.1 billion.

While there are some additional investors in the company, it is believed that Henry Scanlon's share is in excess of 50%. Scanlon, and a few of the other staff will be leaving the company, but the vast majority of the current marketing, production and customer service departments will remain in place and be managed by Jupitermedia staff. Jupitermedia expects to increase production significantly.

Meckler said, the addition of Comstock "immediately makes Jupitermedia one of the largest organizations worldwide in the business of selling stock images by single download or online subscription." The other companies in the industry that I believe generate more revenue than Jupitermedia are: Getty Images, Corbis, Zefa, Creatas, Digital Vision, Hachette, Photonica and Mastefile.

Jupitermedia also announced that it has arranged for a credit facility with HSBC Bank USA that provides for borrowings of up to $23 million to help finance this and other potential acquisitions.

Jim Pickerell is founder of www.selling-stock.com, an online newsletter that publishes daily. He is also available for personal telephone consultations on pricing and other matters related to stock photography. He occasionally acts as an expert witness on matters related to stock photography. For his current curriculum vitae go to: http://www.jimpickerell.com/Curriculum-Vitae.aspx.

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